ValueClick Stock Strong Despite FTC Investigation Shadow

As the popularity of digital marketing companies hits unprecedented levels, independent online marketing firm ValueClick on Friday officially acknowledged it is under investigation by the Federal Trade Commission for its lead generation practices.

In a filing with the SEC, ValueClick stated it received written notification on May 16 that an investigation has begun.

The news did nothing to diminish the value of one of the last sizable independent players on Friday. On a day when Microsoft paid an 85% premium to buy digital marketing firm aQuantive, nearly 25 million shares of ValueClick stock traded hands, an 1100% increase over its typical daily volume. ValueClick closed in New York up 7.6% at $30.

"We are looking forward to the inquiry," said John Ardis, vice president of corporate strategy for Westlake Village, CA-based ValueClick. "We look at this as unfortunate and disappointing, but nothing other than an opportunity to assist the FTC and government."

During an earnings call earlier this month, James Zarley, chairman and CEO of the 10-year-old firm, denied awareness of any imminent legislation. "We believe our disclosure and privacy policies comply with all state and federal guidelines," Zarley said at the time.

In late April, Jordan Rohan, managing director and Internet analyst with RBC Capital Markets, issued a 19-page research note maintaining that ValueClick's current growth is unsustainable because it employs questionable lead generation tactics such as using the word "free" when multiple purchases are required, or using lengthy surveys to generate email addresses for resale to marketers without sufficient disclosure.

"In our view, the writing is on the wall for reform of the highly-incentivized lead generation companies like ValueClick's WebClients. The timing of that reform is hard to predict with accuracy, but the ultimate magnitude could be significant," Rohan wrote.

Ardis said lead generation represents perhaps half of ValueClick's media business, but all its lead generation programs cannot be characterized in the same way.